Quoted from merccat:I think this is one of the bigger factors in the market over the last decade or two.
It goes like this:
- Most people shop based on a monthly payment they can afford.
- There are two factors that determine that payment: a) how much you spend on a house and b) how much your interest rate is.
- You slash the interest rate and suddenly all the buyers across the entire market can afford more, a lot more actually. Depending on where they started in the market at minimum 75k more and probably on average about 150k more while keeping the exact same monthly payment.
- If all the buyers in the market can suddenly afford to spend 150k more without impacting their original budget.... well the market will react accordingly. Is that good or bad? The money is getting spent either way: it depends on who you would rather get it... the bank and their stockholders or the property owners/sellers.
- Here in CA the effect is amplified because we restrict new home construction and have area where there is literally no more space to build at all (SF).
Granted oversimplified and not the only factor but I think it is a significant one that people should be conscious of whether you are a buyer or a seller.
What people don't understand that in California processing projects comes at a big price and risk. Just simply getting projects approved for construction is big money, and is almost 100% political. For example it might cost you $100K per house just to get it approved (CEQA, planning, construction docs, etc)...on top of that it could cost over $100K just in impact fees (sewar, water, schools, traffic, affordable housing, etc), and another $150K for infrastructure costs....so your $350K in the hole before you put a stick in the ground. These costs are driven by the environmental requirements, and local city costs.